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Net Operating Loss for Corporation

Overview

A net operating loss (NOL) results when a corporation’s allowable deductions for federal purposes exceed its income. Virginia law recognizes such NOL deductions to the extent the losses are included in federal taxable income (See Code of Virginia § 58.1-301 for exceptions). Currently, Virginia does not allow a five-year carry-back of net operating losses as federal corporation law does. Virginia allows corporations a two-year carry-back (Code of Virginia §58.1-301). For Virginia purposes, an NOL can be carried-forward for 20 years. It may be necessary to keep a separate set of books for federal purposes and Virginia purposes.

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Form to File

Form 500NOLD

Include a copy of federal Form 1139

Submit Form 500 NOLD to:

Department of Taxation
P.O. Box 1500
Richmond, VA 223218

Note: For a capital loss carry-back, file an Amended Virginia Corporation return using Form 500 and 500ADJ.

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FAQ

Does a corporation have the option to carry-forward its NOL instead of first carrying it back for Virginia purposes?

Yes, Virginia does allow a corporation to carry-forward its NOL instead of carrying it back first. An election statement to forego the carry-back must be included in the Virginia return in the year the loss was incurred clearly stating that the corporation is electing to forego the carry-back. (This statement is required any time the Virginia and federal returns do not include all of the same entities and/or use the same filing status.) Without this statement, the NOL must be carried back first. It would be carried back to the earliest of the two years first.

How do adjustments to federal taxable income (FTI) affect an NOL or an NOL carry-back/carry-forward?

For Virginia purposes, items such as Contribution Subtraction Limitations, Domestic Production Activities Subtraction Limitations, Special Deprecation Non Conformity issues, and other similar adjustments will modify the true FTI figure. The true amount of NOL available for carry-back/carry-forward, as well as the true amount of FTI that the loss carry-back/carry-forward is applied to, is modified by these adjustments. FTI cannot be reduced to a figure lower than zero when applying an NOL carry-back or carry-forward after these adjustments to FTI have been considered.

Additions and subtractions, in the year the loss is incurred, must be carried as modifications with the loss when it is used as a carry-back or carry-forward. How do I identify the additions and subtractions that follow the loss as modifications?

Only additions and subtractions identified in Code of Virginia § 58.1-402 follow the loss as modifications. These modifications follow the loss in the same proportionate share that the loss is used. So if 30 percent of a 2009 loss is being carried back to 2007, then 30 percent of the net additions/subtractions (modifications) from 2009 also get carried back to 2007. It is possible that, after the NOL carry-back or carry-forward is applied bringing FTI down to zero, a tax may still be due because of these modifications.

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Last Updated 7/18/2012 11:13

 

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